If a company wants to raise money from the public through an Initial Public Offering (IPO) in India, it must comply with a detailed regulatory framework led by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, commonly known as the SEBI ICDR Regulations.
The current consolidated ICDR Regulations are listed by SEBI as amended through March 21, 2026. SEBI also issued important circulars in April 2026, including a mechanism for marking certain pledged shares as “non-transferable” when a normal lock-in cannot be created and a one-time relaxation concerning the validity of certain SEBI observation letters.
In simple terms, SEBI IPO rules determine who can launch an IPO, what financial and disclosure requirements apply, how shares are allocated, how promoters' and pre-IPO shares are locked in, and what a company must do before its shares can be listed.
What Are SEBI IPO Rules?
SEBI IPO rules are the regulations and related requirements that govern the issue and listing of securities through a public offer. The principal framework is the SEBI ICDR Regulations, 2018. These regulations deal with matters such as:
- IPO eligibility
- disclosure requirements
- offer documents
- book building
- pricing and price bands
- promoter contribution
- lock-in requirements
- QIB, NII and retail allocation
- anchor investors
- SME IPO requirements
- abridged prospectus requirements
- public issue procedures.
The ICDR framework works alongside other applicable laws and rules, including the Companies Act, the Securities Contracts (Regulation) Rules and stock-exchange requirements.
The important point is that SEBI does not simply “approve” an IPO valuation or guarantee that an IPO is a good investment. Its framework is primarily designed to ensure regulatory compliance and meaningful disclosure so that investors can make informed decisions.
SEBI IPO Rules 2026: Quick Overview
|
Area |
Key Requirement |
|
Main regulatory framework |
SEBI ICDR Regulations, 2018 |
|
Latest consolidated amendment |
March 21, 2026 |
|
Main-board eligibility |
Regulation 6(1) or Regulation 6(2) route |
|
Profitability route |
₹3 crore net tangible assets, ₹15 crore average operating profit and ₹1 crore net worth, subject to prescribed conditions |
|
Alternative QIB route |
Book building with at least 75% of the net offer to QIBs |
|
Standard allocation under Regulation 6(1) |
At least 35% retail, at least 15% NII and not more than 50% QIB, subject to applicable provisions |
|
Anchor investors |
Up to 60% of the QIB portion may generally be allocated to anchors, subject to SEBI conditions |
|
Pre-issue capital lock-in |
Generally six months, subject to specified exemptions |
|
Minimum promoter contribution |
Generally 20% of post-issue fully diluted capital, subject to applicable rules |
|
SME IPO profitability |
Minimum operating profit of ₹1 crore from operations in at least two of the three preceding financial years |
|
SME minimum application |
Two lots, with the minimum application value above ₹2 lakh under the revised SME framework |
The financial eligibility requirements under Regulation 6(1), the 75% QIB alternative route under Regulation 6(2), and the allocation structure are set out in the ICDR framework.
Main-Board IPO Eligibility Criteria Under Regulation 6
For a main-board IPO, Regulation 6 provides two principal eligibility routes.
Route 1: Profitability Route — Regulation 6(1)
Under Regulation 6(1), an issuer must satisfy specified financial conditions calculated on a restated and consolidated basis.
The major requirements include:
1. Net tangible assets
The issuer must have net tangible assets of at least ₹3 crore in each of the preceding three full financial years.
Generally, not more than 50% of those net tangible assets may be held in monetary assets, subject to the prescribed exception where the issuer has utilised or made firm commitments to utilise the excess monetary assets in its business or project.
The 50% monetary-asset restriction does not apply where the IPO is made entirely through an offer for sale, as provided in Regulation 6(1).
2. Average operating profit
The issuer must have an average operating profit of at least ₹15 crore during the preceding three years, with operating profit in each of those three years.
This means a company cannot satisfy the requirement merely by having one exceptionally profitable year. It must meet the operating-profit condition in each of the three relevant years.
3. Net worth
The company must have net worth of at least ₹1 crore in each of the preceding three full financial years, calculated on a restated and consolidated basis.
4. Recent name change
If the company changed its name within the previous year, at least 50% of the revenue for the preceding full financial year must have been earned from the activity indicated by the new name.
Regulation 6(1) checklist
A company considering the profitability route should therefore check:
- ₹3 crore net tangible assets in each of the previous three full years
- No more than 50% monetary assets, subject to the prescribed exception
- ₹15 crore average operating profit over the previous three years
- Operating profit in each of those three years
- ₹1 crore net worth in each of those three years
- Applicable name-change condition.
Route 2: QIB Route — Regulation 6(2)
What happens if a company does not satisfy Regulation 6(1)?
It may still be eligible to make a main-board IPO through Regulation 6(2), subject to the applicable conditions.
The issue must be made through the book-building process, and the issuer must undertake to allot at least 75% of the net offer to Qualified Institutional Buyers (QIBs).
If the required QIB allotment is not achieved, the applicable subscription money must be refunded. SEBI-filed offer documents continue to reflect this 75% QIB requirement for Regulation 6(2) issues.
Regulation 6(1) vs Regulation 6(2)
|
Feature |
Regulation 6(1) |
Regulation 6(2) |
|
Financial eligibility |
Must meet prescribed financial tests |
Alternative route if 6(1) conditions are not met |
|
Book building |
Applicable where issue is book-built |
Required |
|
QIB allocation |
Not more than 50% under the standard allocation structure |
At least 75% |
|
Retail allocation |
At least 35% under the standard structure |
Not more than 10% |
|
NII allocation |
At least 15% under the standard structure |
Not more than 15% |
|
Typical relevance |
Companies meeting profitability criteria |
Companies that do not satisfy Regulation 6(1) |
The allocation structure for both routes is specified in Regulation 32.
Can a Loss-Making Company Launch an IPO?
Yes, potentially. A company that does not satisfy the Regulation 6(1) financial criteria may use the Regulation 6(2) route, provided it satisfies the applicable requirements and conducts the issue through book building with at least 75% of the net offer allocated to QIBs.
This route is particularly relevant for businesses that may not yet have the profitability profile required under Regulation 6(1), but that can access institutional capital subject to the regulatory framework.
However, eligibility does not mean that the IPO is automatically attractive to investors. Investors should separately evaluate:
- Revenue Growth
- Operating Margins
- Cash Flows
- Debt
- Customer Concentration
- Related-Party Transactions
- Litigation
- Promoter Background
- Use Of Ipo Proceeds
- Valuation
- Industry Risks
SEBI IPO Listing Requirements
IPO eligibility and stock-exchange listing are related but are not exactly the same thing. Before launching a public issue, the issuer has to comply with applicable requirements relating to listing, dematerialisation, offer documents and the designated stock exchange.
The ICDR framework requires an issuer to make the necessary listing application and enter into arrangements for dematerialisation of securities, among other general conditions.
The company also needs to work with its appointed intermediaries and comply with applicable stock-exchange requirements.
Typical IPO intermediaries include:
- Book Running Lead Managers / Merchant Bankers
- Registrar to the Issue
- Legal advisers
- Auditors
- Bankers to the Issue
- Depositories
- Stock exchanges
- Other registered intermediaries, where applicable.
Minimum Public Shareholding and Public Offer
The percentage of shares offered to the public is governed by the applicable provisions of the Securities Contracts (Regulation) Rules and SEBI framework. The exact requirement can depend on factors such as the company's post-issue capitalisation and the applicable listing route.
Therefore, a company should not rely on a blanket statement that every IPO must immediately offer exactly 25% of its post-issue capital.
For SEO and compliance purposes, the safer explanation is:
The minimum public offer and minimum public shareholding requirements depend on the applicable securities and listing framework, including the Securities Contracts (Regulation) Rules and SEBI requirements.
This distinction is important because large companies can be subject to different initial public-offer percentages and subsequent requirements.
IPO Share Allocation Rules
One of the most important parts of SEBI IPO regulations is how the net offer is divided among investor categories.
Regulation 6(1) — Standard Book-Built Structure
For a book-built issue under Regulation 6(1), the standard allocation framework provides:
- Retail Individual Investors: At least 35%
- Non-Institutional Investors: At least 15%
- Qualified Institutional Buyers: Not more than 50%
There are provisions for movement of unsubscribed portions and other applicable conditions.
Regulation 6(2) — QIB Route
For an issue under Regulation 6(2):
- QIBs: At least 75%
- Retail investors: Not more than 10%
- NIIs: Not more than 15%
This structure reflects the fact that the Regulation 6(2) route is designed around substantial institutional participation.
What Are Anchor Investors?
Anchor investors are institutional investors that can participate in the IPO before the issue opens to other investors, subject to the applicable SEBI framework.
Under Regulation 32, an issuer may generally allocate up to 60% of the QIB portion to anchor investors, subject to the applicable conditions.
Recent SEBI-filed IPO documents in 2026 continue to reflect this 60% framework.
The anchor investor bidding period is generally one working day before the public issue opens.
Anchor allocation should not be confused with a separate investor category outside the QIB framework. It is part of the QIB portion.
IPO Pricing and Valuation Rules
SEBI does not prescribe a universal formula saying that an IPO share must be worth a particular amount.
In a book-built IPO, the issuer and its Book Running Lead Managers determine the price band after considering factors such as:
- Financial Performance
- Industry Conditions
- Comparable Listed Companies
- Growth Prospects
- Business Risks
- Demand Conditions
- Key Performance Indicators
- Valuation Metrics.
For book-built issues, the cap price is subject to the applicable limit over the floor price. Current 2026 offer documents continue to show a cap price of at least 105% of the floor price and no more than 120% of the floor price.
The final issue price is discovered through the bidding process.
What investors should check
Instead of asking only “Is this IPO cheap?”, investors should examine:
- Price-to-Earnings ratio
- Price-to-Sales ratio
- EV/EBITDA where relevant
- Return On Equity
- Return On Capital Employed
- Revenue Growth
- Profit Growth
- Operating Cash Flow
- Debt Levels
- Peer-Company Valuations.
SEBI's role is to require appropriate disclosures; it does not certify that an IPO is “fairly valued.”
IPO Lock-In Rules
Lock-in requirements are designed to prevent certain shareholders from immediately selling shares after the IPO.
Minimum promoter contribution
Under the applicable framework, minimum promoter contribution is generally 20% of the fully diluted post-issue capital, subject to the detailed conditions and exceptions under the ICDR Regulations.
Recent SEBI-filed prospectuses continue to reflect an 18-month lock-in for the 20% minimum promoter contribution and six months for promoter shareholding above that minimum, subject to the applicable provisions.
Pre-issue capital
The general framework also provides for a six-month lock-in of pre-issue capital, subject to specified exemptions and conditions.
Because lock-in provisions contain several exceptions and special cases, companies should check the exact current regulation rather than applying a simplified rule to every shareholder.
Important SEBI IPO Change in 2026: Pledged Shares
One of the practical changes introduced in 2026 concerns shares on which a normal lock-in cannot be created.
The March 2026 amendment inserted a mechanism under Regulation 17 under which, where a lock-in cannot be created, the depositories may, on instructions from the issuer, record the specified securities as “non-transferable” for the applicable lock-in period.
SEBI subsequently issued an April 8, 2026 circular to operationalise this mechanism for pledged shares.
Why does this matter?
Previously, pledged or otherwise encumbered shares could create practical difficulties in implementing lock-in requirements.
The new mechanism allows the lock-in restriction to be implemented through a non-transferability marking where the normal lock-in mechanism cannot be created.
This is a mechanism change, not a general cancellation of lock-in requirements.
Draft Abridged Prospectus and QR Codes: 2026 Update
Another important 2026 change relates to investor-friendly disclosures.
The 2026 ICDR amendment introduced requirements around a draft abridged prospectus at the draft-offer-document stage and strengthened accessibility of offer-document information.
The revised framework also provides for QR codes and links that allow investors to access relevant offer documents. SEBI-filed draft abridged prospectuses in 2026 demonstrate the practical implementation of these requirements.
The purpose is straightforward:
-
Make important IPO information easier for investors to find, read and cross-check.
-
The revised disclosure approach also emphasises clear, simple and understandable language.
-
For investors, this means the abridged prospectus can be a useful starting point—but it should not replace reading the complete RHP/prospectus for a serious investment decision.
SME IPO Rules 2026
SME IPOs operate under a separate part of the ICDR framework and have different eligibility, investor and trading characteristics from main-board IPOs.
One important recent change is the SME profitability requirement.
Under the revised framework, an SME issuer must have minimum operating profits (EBITDA) of ₹1 crore from operations in at least two of the three previous financial years.
SME IPO application size
SEBI's review of the SME framework approved a minimum application size of two lots, with the resulting minimum application value being above ₹2 lakh. This was specifically designed to distinguish SME IPO participation from the traditional retail category used for main-board issues. Therefore, it is better to describe the rule as:
SME IPO applications generally require at least two lots and a minimum application value above ₹2 lakh, subject to the applicable lot-size and issue-price mechanics.
Simply writing “SME IPO minimum application = ₹2 lakh” can be misleading because the actual amount depends on the lot size and issue price.
Main Board vs SME IPO
|
Parameter |
Main Board IPO |
SME IPO |
|
Primary framework |
SEBI ICDR Regulations |
SEBI ICDR Regulations, SME provisions |
|
Listing platforms |
NSE/BSE Main Board |
NSE Emerge/BSE SME |
|
Financial eligibility |
Higher thresholds under applicable route |
Separate SME eligibility framework |
|
Profitability requirement |
₹15 crore average operating profit under Reg. 6(1) route |
₹1 crore operating profit in at least 2 of preceding 3 years |
|
Minimum application |
Retail framework generally applies up to ₹2 lakh |
Minimum two lots and above ₹2 lakh |
|
QIB route |
Available under Regulation 6(2) |
SME-specific rules apply |
|
Investor profile |
Broad public participation |
Higher ticket size and different risk profile |
SME IPO investors should also examine liquidity, market-making, financial performance and post-listing trading risks carefully.
IPO Documents: DRHP, RHP and Prospectus
Understanding IPO documents is essential for both companies and investors.
1. DRHP — Draft Red Herring Prospectus
The Draft Red Herring Prospectus (DRHP) is the principal draft offer document filed during the IPO process. It contains detailed information about:
- Business
- Financial Statements
- Promoters
- Management
- Risk Factors
- Industry
- Litigations
- Indebtedness
- Related-Party Transactions
- Objects Of The Issue
- Capital Structure
- Shareholding
- Use Of Proceeds.
SEBI maintains information regarding draft offer documents filed and under processing.
2. SEBI observations
SEBI reviews the offer document and communicates observations in accordance with the applicable regulations.
Under the ordinary framework, a public issue may be opened within 12 months from the date of SEBI observations under Regulation 44(1), while the confidential pre-filing route has 18 months under Regulation 59C.
2026 one-time relaxation: In April 2026, SEBI provided a one-time relaxation for observation letters expiring between April 1 and September 30, 2026, extending their validity until September 30, 2026, subject to specified conditions.
This was a temporary relaxation, not a permanent change to the standard validity periods.
3. RHP — Red Herring Prospectus
The RHP contains the detailed information required before the IPO opens and is an important document for investors.
4. Prospectus
After the applicable filing process, the final prospectus contains the finalised offer information, including the final issue price where applicable.
IPO Process in India: Step-by-Step
A simplified main-board IPO journey looks like this:
1. Board decision
The company decides to explore an IPO and begins preparing for the transaction.
2. Appointment of intermediaries
Merchant bankers, legal advisers, auditors, registrar and other intermediaries are appointed as required.
3. Due diligence
Financial, legal, business and regulatory due diligence begins.
4. DRHP preparation
The company prepares the draft offer document containing detailed disclosures.
5. Filing with SEBI
The draft offer document is filed through the applicable process.
6. SEBI observations
SEBI communicates observations under the applicable regulatory framework.
7. RHP and issue preparation
The company completes the required documentation, pricing strategy and issue preparations.
8. Price band announcement
For a book-built issue, the applicable price band is announced.
9. IPO bidding
Investors submit bids through the applicable ASBA/UPI mechanisms.
10. Price discovery
The final issue price is determined through the book-building process.
11. Basis of allotment
Shares are allotted according to the applicable rules and category-wise demand.
12. Listing
The shares are admitted to trading on the relevant stock exchange. The exact timeline can vary by issue, market conditions, regulatory processing, and exchange procedures.
What Does SEBI Check in an IPO?
SEBI's IPO framework focuses heavily on disclosure and regulatory compliance.
Important areas include:
- Financial information: Investors need access to relevant financial statements and related information.
- Risk factors: Material business and investment risks must be disclosed.
- Promoters and management: Information about promoters, directors and key management personnel is disclosed.
- Related-party transactions: Relevant related-party information must be disclosed as prescribed.
- Objects of the issue: The company must explain how the funds raised through the fresh issue are proposed to be used.
- Litigation and regulatory matters: Material legal and regulatory matters need appropriate disclosure.
- Capital structure: The offer documents explain the company's capital structure and relevant shareholding information. The objective is to give investors enough information to independently assess the opportunity and risks.
What SEBI Does Not Guarantee
A common misunderstanding is that if SEBI allows an IPO to proceed, it means SEBI has certified the company as a good investment. That is not the correct interpretation.
SEBI compliance does not guarantee:
- Future Share-Price Appreciation
- Profitability
- Business Success
- Fair Valuation
- Dividend Payments
- Protection From Market Losses.
An IPO can satisfy regulatory requirements and still perform poorly after listing. That is why investors should independently analyse the offer document and the company's fundamentals.
IPO Compliance Checklist for Companies
Before moving towards an IPO, a company should review at least the following:
Corporate and governance readiness
- Board and shareholder approvals
- Appropriate corporate structure
- Promoter and promoter-group records
- Board composition
- Independent directors where required
- Related-party transaction review
- Litigation review.
Financial readiness
- Audited financial statements
- Restated financial information
- Net tangible assets
- Operating-profit requirements
- Net worth
- Debt and contingent liabilities
- Cash-flow position.
Regulatory readiness
- Regulation 6 eligibility
- Stock-exchange requirements
- Public-offer requirements
- Promoter contribution
- Lock-in
- Dematerialisation
- Existing securities and convertibles
- Applicable SEBI restrictions.
Disclosure readiness
- Business description
- Industry information
- Risk factors
- Promoter details
- Financial information
- Objects of the issue
- Related-party transactions
- Litigation
- Key performance indicators
- Draft abridged prospectus
- Offer-document accessibility.
A company should treat IPO preparation as a long-term governance project rather than simply a fundraising exercise.
2026 SEBI IPO Rule Changes: What Has Changed?
The March 2026 ICDR amendment and subsequent SEBI guidance introduced important practical changes.
Key developments include:
1. Non-transferable mechanism for certain locked-in securities
Where a lock-in cannot be created, depositories can record specified securities as non-transferable for the applicable lock-in period on issuer instructions.
2. Draft abridged prospectus
A draft abridged prospectus is now part of the enhanced offer-document disclosure framework.
3. QR-code and link-based access
The revised disclosure architecture makes offer documents easier to access digitally. 2026 SEBI-filed draft abridged prospectuses visibly implement the QR-code approach.
4. One-time observation validity relaxation
Certain SEBI observations expiring between April 1 and September 30, 2026 received a one-time extension to September 30, 2026, subject to the specified conditions.
These developments continue SEBI's broader focus on investor-friendly disclosure, operational efficiency and stronger compliance mechanisms.
Conclusion
The SEBI IPO rules for 2026 are designed to balance two objectives: allowing genuine companies to access public capital while ensuring that investors receive meaningful and timely information.
SEBI compliance does not mean an IPO is automatically a good investment. Before applying, investors should read the RHP, understand the company's business, assess its financials and cash flows, compare its valuation with peers, study the risk factors, and understand how the IPO proceeds will be used.
For companies planning an IPO, the best approach is to treat SEBI compliance not as a last-minute filing exercise, but as long-term preparation for becoming a transparent, accountable public company.
(Sources: SEBI GOV, Indian Express, Business Standard, Economics Time, NSE INDIA, NSDL, ICSI)
DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is only for educational purposes. Always discuss with your SEBI-registered financial advisor for investment-related decisions.
